Refinancing America?

“The Ultimate Measure of a Man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.” – Dr. Martin Luther King Jr.

This week will mark another step toward attempting to solve one of the fundamental challenges that continues to keep our economy depressed – housing. Since the financial crisis struck three years ago, there has been a constant undertone about the impact that the depressed American housing market has on the overall ability for this country to re-stabilize. At the same time, there has been very scattered focus on getting to the root cause and offering up solutions and policies that can get housing back on track. If we could get more of a clear vision and focus on housing – similar to what we are seeing with the unemployment/jobs issue, we might actually start to see some progress. The issues of jobs, housing and the economy are extremely intertwined. And at the end of the day, we all need a place to live.

The housing flavor for this week will focus on people who already own a home, who have been largely unassisted thus far in the housing crisis and unable to refinance their mortgage loans. Many people are continuing to pay their mortgages on time, but have been unable to benefit from the historically low mortgage rates we have seen in the past few weeks. Why are they left out? It’s because their homes are underwater in depressed markets where housing prices have decreased over the past several years. They owe a lot more on their homes than the house is worth today, and they are continuing to pay more for a house that is extremely undervalued. To date, many banks have been unwilling to help people in this situation and as a result, some borrowers are walking away from their homes as others wait for help and hope. This marks an important small step in addressing a systemic problem, but still more is needed to help the masses.

The refinance plan that the Obama administration unveils this week will take a small step toward giving some people help, but unfortunately it still leaves millions of homeowners on the sidelines with no relief options. This is because the program only helps certain mortgages that are owned and guaranteed by federal government agencies. For banks and other private investors who own mortgages (which would include the vast majority of loans that were subprime), this program will not help. And who are these people? A large majority were subprime borrowers and minority families, who got involved in the homeownership dream with mortgage products that are now at ridiculously high interest rates and completely unaffordable or that include second liens at unscrupulous rates. This is the reality of housing for many black families, and it begs the question about when the entire housing system at large will get relief and have the ability to refinance. Not all minority home loans are subprime, but many who took a chance on ownership, largely without a lot of education and knowledge about mortgages, did get a bad deal. Black homeownership rates continue to decline quarter over quarter, as blacks reconsider the dream due to the massive number of foreclosures and lack of affordable home buying options that exist today. According to the US Census Bureau, in the 2nd Quarter of 2011, the rate of homeownership for blacks has fallen to 44.2%, compared to whites who have a 73.7% rate. The homeownership rate for blacks is now back to levels seen in 1996.

How far will the refinance plan reach?

If you are reading this article and own a home, you are in a good position to do something. Take some action about your own situation or that of close family and friends who can benefit. If you own a home, find out today what your interest rate is. If it is anything over 5%, you should be ACTING immediately! Get on the phone with your mortgage servicer (the company/bank you make your mortgage payments to) and ask them if you can do a refinance to take advantage of these historically low interest rates. Key questions you should ask when you call your servicer:

  • Are you offering a streamlined refinance option? Streamlined refinancing means the bank you have your loan with does the refinance for you with little additional cost or fees and minimal underwriting requirements. Typically there is no credit check, no appraisal requirements, no down payment, no additional fees and all of the loan processing is built into the new loan so you don’t have to come out of pocket. It’s simplified and allows you to just get the benefit of the new interest rate, reduce your payments but largely keep everything else about your loan the same. No closing costs or fees.
  • Is your loan owned by Fannie Mae or Freddie Mac? Find out the answer to this from your servicer. There are also tools online that you can use to plug in your information and find out if your loan is owned by these investors. The programs that President Obama has announced with the Federal Housing Finance Agency this week are largely geared toward helping consumers who have loans that are owned by Fannie Mae or Freddie Mac. If they don’t own your loan, don’t give up hope. You should still reach out to your servicer to find out what options may be available to you.
  • What are the credit criteria and costs of a traditional refinance and would I qualify for one?You basically want to know what options you might have given your current credit score and the current loan to value on your property (the amount you owe and the amount the house is worth). Find out what the typical process is and what fees and costs would apply to you. You can also shop around to other banks in your community or your local credit union to find out if they would be willing to refinance you. In the current environment, many of the small community banks and credit unions are happy to have you as a customer and would consider refinancing your mortgage loan to gain your other banking business. You have to know the rules of the game in order to play, so find out as many details as possible around requirements for getting relief.

What if you have a second mortgage, can that be refinanced too? It’s a critical question. Many of the loans that enabled people to get into their homes involved both a first mortgage and a second mortgage which allowed for little or no down payment. When you add them together, it could be the combination of the two mortgages that makes your payment each month unaffordable. In addition, the interest rates on the 2nd liens are typically much higher. When you get into the discussion with your servicer about refinancing, you should be working to ensure that you include the balance on your second mortgage into the new loan, at the new low rate.

Time to take action! Here is what you can and cannot do.

The bottom line is this; you cannot sit on the sidelines and wait for something to happen. You cannot complain if you are not willing to do something. If you own a home and have been making your monthly mortgage payments, shouldn’t you have the right to get most benefit out of the current interest rate situation? If you have struggled and your credit has been damaged, you should find out about loan modification and restructuring options for borrowers who are at risk of defaulting on their mortgages. If you have difficulties with your bank cooperating or in just getting through to them to discuss your refinance options, don’t give up on the situation. A big part of the problem we have right now in this country is lack of “the people” intervening in the situation on our own behalf. We are not helpless if we lift our voices. That is why you see what is happening with the “occupy wall street” movements taking place around the world. The people are speaking out, creating a venue to be heard. We cannot leave it to the current Congress, President or anyone else in politics to fight these problems on our behalf. It is time to take matters into our own hands.

  • Get your pens out and start writing letters to bank presidents, President Obama, your local Congressman or representative. Not just complaint letters, but letters demanding answers as to why you cannot get help if you deserve it.
  • Get involved in your community with non-profit counselors who are trying to assist home owners.
  • Get educated on what is available and spread the word about it at your church, community center/YMCA, student center or anywhere else where you gather.

Make some noise! If not, we will continue to see this continuous cycle of disparity and very little change. Our problems need to have solutions for “ALL” Americans, not just a handful. As this country continues to make progress on the economy, jobs and housing industry reform, there needs to be focus on building a system that is equitable for all consumers. This is a test. How will you respond during this time of challenge and controversy? Are you part of the solution or just a contributor to complaints?

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New entrants to homeownership will need more financial education resources, training and financing programs to help navigate the process and become successful homeowners. First time homebuyers, millennials, new immigrants, minorities, women head of households are all projected to be the demographic types that will drive housing demand in the future. New focus, financial literacy programs, housing programs and credit access methods will be key to successfully serving the new housing market.

“If you get, GIVE. If you learn, TEACH.”

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